Cannabis dealmaker Andy DeFrancesco resigning from SOL Global to lead spin-off investment entity
Controversial cannabis investor Andy DeFrancesco has resigned from his position as chairman and chief investment officer of SOL Global Investments Corp. and is assuming a new role as executive chairman and chief investment officer of a spin-off investment firm — SOL Investment Group.
DeFrancesco, along with SOL chief executive officer Brady Cobb had founded the Toronto-based international cannabis company in 2016, under the name Scythian Biosciences Corp.
A statement released by the company Wednesday morning said that SOL Global will morph into a U.S. multi-state cannabis operator under a new name, Bluma Wellness Inc. and continue to be led by Cobb. SOL Investment Group, the new entity, will handle all of SOL Global’s “non-MSO assets.”
After a brief spike in the first few hours of trading, SOL Global’s stock, which is listed on the Canadian Securities Exchange dropped more than six per cent over the course of the day.
In an interview with the Financial Post, DeFrancesco characterized his departure from SOL and the creation of the new investment company as a strategy to ensure that SOL’s investors continue to benefit from investing in the cannabis space.
“When the sector turns negative, that has a negative effect on all of us. So what we decided was let’s turn the company into three pure plays — one is the MSO, which is Bluma Wellness, the other is Heavenly Rx which will focus on the CBD and hemp side of things, and the third will be my newly formed investment company which will have a preferred share dividend structure,” DeFrancesco said.
The new private company, according to DeFrancesco will continue to be a large shareholder of SOL Global and Heavenly Rx. “I’ll step away from operations on a day-to-day basis and stick to doing what I do best, which is structuring the new company,” he said.
Details of the preferred share dividend structure of SOL Investment Group and how exactly it will benefit current shareholders of SOL Global will be made public in the coming weeks, DeFrancesco said.
DeFrancesco and SOL Global were in the spotlight last December when a short-seller report accused DeFrancesco of orchestrating the sale of SOL-owned Latin American cannabis assets to Aphria Inc., at an inflated price. The report also alleged that DeFrancesco, along with then Aphria CEO Vic Neufeld and co-founders John Cervini and Cole Cacciavillani personally benefited from the LATAM transaction. DeFrancesco has publicly refuted those allegations on numerous occasions.
SOL’s quarterly earnings for the period ending March 31, 2019 showed that the company had gained $150 million from the sale of the LATAM assets to Aphria. The Leamington-based company, however, took a $50-million writedown at the behest of the Ontario Securities Commission for the purchase of those assets.
SOL Global’s portfolio currently includes Florida-based licensed medical marijuana operator 3 Boys Farm, which was indirectly bought through an acquisition of CannCure Investments Inc., a privately held Ontario corporation registered to DeFrancesco.
According to a news release regarding the transaction in April, 3 Boys consists of a 40,000 square-foot “fully operational greenhouse” in Ruskin, Fla., which harvests 350 pounds per month of dried cannabis flower. The cannabis operator also intends to open six dispensaries across Florida by the end of this year, according to Wednesday’s statement.
Apart from 3 Boys, SOL Global has signed numerous binding letters of intent to acquire cannabis dispensaries and cultivators in California and Michigan.
In terms of assets outside the U.S., SOL’s website states the company has investments in Canadian cannabis company DNA Genetics, a European venture capital firm called ECH Ltd., and GreenLight Medicines, a biopharmaceutical company based in Dublin, Ireland. It is unclear which of these assets will be spun into DeFrancesco’s new company, SOL Investment Group.
“Further details of the spin-off transaction will be provided in the coming weeks as the company works to conclude its strategic review of its assets,” the statement said.
Over the past few months DeFrancesco has been building up Heavenly Rx, a hemp-focused subsidiary of SOL Global, which was founded in April 2019 as a Florida-based entity registered to DeFrancesco’s wife, Catherine DeFrancesco.
Florida corporate filings show that on June 7, Catherine DeFrancesco signed off on the dissolution of Heavenly Rx, but just 10 days later a revocation of that dissolution was filed with the state by one Larry M. Goldberg. On July 23, Heavenly RX submitted an official change in registrant of the company, from Catherine DeFrancesco to Goldberg.
It was also around this time when SOL Global began announcing significant investments in Heavenly Rx, as part of a larger private offering by the CBD company. SOL’s first investment was a purchase of shares worth $15 million — it subsequently increased that stake to $24 million or 44 per cent of Heavenly Rx. In a statement issued by SOL Global regarding its participation in the offering, the company disclosed that they were “related party transactions” under Canadian securities laws because SOL was considered a “control person” of Heavenly Rx.
Heavenly Rx also made a series of high profile moves over the summer, including the purchase of a 25 per cent stake in the popular Seattle-based drinks company Jones Soda, and the appointment of former Kellogg president Paul Norman as its CEO and Fox News host Judge Jeanine Pirro as a board member.
“Brady and I started SOL together, and I want to make sure that whatever I do next with the new investment company will reward SOL’s loyal shareholders,” DeFrancesco emphasized.
The changes to SOL Global, including DeFrancesco’s departure from the company, are expected to be finalized on or before the end of October.